MonetaryPolicy Report October2018

Monetary Policy ReportOctober 2018

Chapter 1

Figure 1.1. Repo rate with uncertainty bands

Note. The uncertainty bands for the repo rate are based on the Riksbank’s historical forecasting errors and the ability of risk‐premium adjusted forward rates to forecast the future repo rate for the period 1999 up to the point when the Riksbankstarted to publish forecasts for the repo rate during 2007. The uncertainty bands do not take into account the fact that there may be a lower bound for the repo rate. Outcomes are daily rates and forecasts refer to quarterly averages.

Source: The Riksbank

Per cent

Figure 1.2. GDP with uncertainty bands

Note. The uncertainty bands are based on the Riksbank’s historical forecasting errors. There is also uncertainty for the outcomes for GDP, as the figures in the National Accounts are revised several years after the preliminary publication.

Sources: Statistics Sweden and the Riksbank

Annual percentage change, seasonally‐adjusted data

Figure 1.3. CPIF with uncertainty bands

Note. The uncertainty bands are based on the Riksbank’s historical forecasting errors.


Annual percentage change

Note. The contribution of energy prices to the CPIF in the forecast is calculated as the annual percentage change in energy prices multi‐plied by their current weight in the CPIF.


Annual percentage change and percentage points respectively

Figure 1.4. CPIF and contributions from energy prices

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Energy prices contribution to the CPIF

CPIF

Figure 1.5. CPIF



Figure 1.6. Repo rate

Note. Outcomes are daily data and the forecasts refer to quarterly averages.


Per cent

Figure 1.7. The Riksbank’s holdings of government bonds

Note. Forecast up until June 2019, after that a technical projection under the assumption that no further reinvestments are made. Holdings are also affected to a certain extent by bonds market prices and by which bonds the Riksbank chooses to reinvest in. The vertical line marks the shift between the forecast and the technical projection.


Nominal amounts, SEK billion

Figure 1.8. The Riksbank's purchases and reinvestments

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H1 2015 H2 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018 H1 2019

Reinvestments of coupons

Reinvestment of principal payments

New purchases

Note. The development for reinvestments from mid‐2018 onwards is a forecast and refers to nominal amounts. The final amounts will dependon current market prices.


Nominal amounts, SEK billion

Figure 1.9. Real repo rate

Note. The real repo rate is the Riksbank’s expected real interest rate, calculated as a mean value of the Riksbank's repo rate forecast for the year ahead minus the inflation forecast (CPIF) for the corresponding period. Outcomes are based on the latest forecasts at that time.


Per cent, quarterly averages

Figure 1.10. House prices according to HOX Sweden

Sources: Valueguard and the Riksbank

Per cent

Figure 1.11. Household debt ratio

Note. Households' total debts as a share of their disposable income totalled over the past four quarters.


Per cent of yearly disposable income

Article –Why measures ofunderlyinginflation?

Figure 1.12. Measures of core inflation



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CPIFPC CPIFPVUND24 TRIM1TRIM85 CPIF excl. energy and unprocessed foodCPIF excl. energy

Figure 1.13. Correlation between various inflation measures and the RU indicator with delay of a varying number of quarters

Note. The estimation period is Q1 1996 to Q2 2018. The figure shows the estimated correlation coefficient between respective inflation measures and the RU indicator with delays of a different number of quarters. The CPIFPC is revised every time a new observation is added. Measures of inflation calculated using real‐time data are used in the estimations.

Source: the Riksbank

Correlation coefficient

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CPIFPCCPIFPVUND24TRIM1TRIM85CPIF excl. energy and unprocessed foodCPIF excl. energyCPIF

Chapter 2

Figure 2.1. Policy rates and rate expectations according to forward rates

Sources: The national central banks, Macrobond and the Riksbank

Per cent

Note. Forward rates describe the expected overnight rate, which does not always correspond to the policy rate (the main refinancing rate for the euro area). Unbroken lines refers to 19 October 2018, broken lines refers to 3 September 2018.

Figure 2.2. Government bond yields with 2 years to maturity

Note. Implied zero‐coupon yields from government bonds. The vertical line indicates the Monetary Policy Meeting in September.

Sources: The national central banks and the Riksbank

Per cent

Figure 2.3. Government bond yields with 10 years to maturity

Note. Implied zero‐coupon yields from government bonds. The vertical line indicates the Monetary Policy Meeting in September.

Sources: The national central banks and the Riksbank

Per cent

Figure 2.4. Yield differential in relation to Germany, 10‐year

Note. Yield differentials refer to 10‐year benchmark bonds. Source: Macrobond

Percentage points

Figure 2.5. Stock market movements in local currency

Note. The vertical line indicates the Monetary Policy Meeting in September.

Source: Macrobond

Index, 4 January 2016 = 100

Figure 2.6. Emerging market economies’ exchange rates against the dollar

Note. A higher value indicates a weaker exchange rate. Source: Macrobond

Index, 1 January 2018=100

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Jan‐18 Mar‐18 May‐18 Jul‐18 Sep‐18

Turkey South AfricaMexico IndiaBrazil Argentina

Figure 2.7. Repo rate and market expectations

Note. The forward rate refers to 2018‐10‐19 and is a measure of the expected repo rate. The survey responses show the average for money market participants 2018‐08‐08 respectively 2018‐10‐10.

Sources: Macrobond, TNS Sifo Prospera and the Riksbank

Per cent

Figure 2.8. Competition‐weighted nominal exchange rate, KIX

Note. KIX refers to an aggregate of countries that are important for Sweden's international transactions. The vertical line indicates the Monetary Policy Meeting in September.


Index, 1992‐11‐18 = 100

Figure 2.9. Swedish companies’ interest‐bearing loan debt

Note. Outcomes for loans from foreign banks and intercompany loans extend to June. Outcomes for the rest of the variables are until August.


SEK billion

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Loans from Swedish banks etc. Securities lending in SwedenSecurities issuance abroad Loans from foreign banks etc.Foreign intercompany loan, net debt

Figure 2.10. Repo rate together with the average deposit and lending rate to households and companies, new contracts

Note. MFIs’ average deposit and lending rates are a weighted average of all interest rates for different maturities.


Per cent

Article –What usuallyhappens when the repo rate is raised?

Figure 2.11. Repo rate changes in periods of rising interest rates in Sweden

Note. The horizontal axis specifies the number of weekdays after the first rise of the repo rate. The repo rate forecast refers to quarterly averages and the points are placed in the middle of each quarter. The first point is placed after 22 days, corresponding to the middle of the fourth quarter of 2018.

Source: the Riksbank

Percentage points

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July 2010 to July 2011

January 2006 to September 2008

November 1999 to July 2001

Forecast for the repo rate

Figure 2.12. Change of repo rate, two‐year government bond yield and short mortgage rate over the rate‐rise period 1999–2001

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Three‐month mortgage rate, SBAB

Two‐year government bond yield

Repo rate

Sources: SBAB, Macrobond and the Riksbank

Percentage points


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Repo rate


Percentage points


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Repo rate


Percentage points

Figure 2.15. The repo rate and forward pricing during the rate‐rise period from January 2006 to September 2008


Per cent

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Repo rate

Forward, 100 days ahead

Forward, decision day

Forward, 100 days after

Figure 2.16. The development of the krona exchange rate in periods of repo rate rises

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2010‐2011

2006‐2008

1999‐2001

Note. The horizontal axis refers to the number of days from the first rate rise.


KIX, Index 18 November 1992 = 100

Figure 2.17. Repo rate, household and market expectations and lending rate to households

Note. The forward rate refers to 19 October 2018 and is a measure of the expected repo rate. Survey responses show the mean value for money market participants on 10 October 2018. MFI’s average lending rate is a volume‐weighted average of rates for all maturities. Household expectations of the short mortgage rate are according to the Economic Tendency Survey for September.

Sources: Macrobond, TNS Sifo Prospera, Statistics Sweden, National Institute of Economic Research and the Riksbank

Per cent

Chapter 3

Figure 3.1. CPIF and variation band

Note. The pink area shows the Riksbank’s variation band and covers about three‐quarters of the outcomes since January 1995. The variation band is a means of showing whether the deviation from the inflation target is unusually large. The broken line represents the forecast.



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Figure 3.2. The CPIF and different measures of underlying inflation

Note. The line represents the CPIF. The field shows the highest and lowest outcomes among different measures of underlying inflation. The measures included are the CPIF excluding energy, UND24, Trim85, CPIF excluding energy and unprocessed food, persistence‐weighed inflation (CPIFPV), factor from principal component analysis (CPIFPC) and weighted mean inflation (Trim1). The red dot represents the median value in September 2018 for all measures of underlying inflation.



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Figure 3.3. Prices for services, goods and energy in the CPIF

Note. Goods including food comprise together 45 per cent of the CPIF, services comprise 45 per cent and energy 7 per cent of the CPIF.



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Energy (left scale)

Goods including food (right scale)

Services (right scale)

Figure 3.4. CPIF excluding energy, model forecast with uncertainty bands

Note. The uncertainty bands 50, 75 and 90 per cent are based on the models' historical forecast errors.



Figure 3.5. Price plans in the business sector and trade sector

Note. Balances is the difference between the proportion of companies stating that they expect higher sales prices and those expecting lower sales prices over the next three months. Broken lines represent the averages since May 2003.

Source: National Institute of Economic Research

Balances, seasonally‐adjusted data

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Trade sectorTotal business sector

Figure 3.6. Inflation expectations among money market participants

Source: TNS Sifo Prospera

Per cent, mean value

Figure 3.7. Underlying inflation abroad

Note. The HICP excluding energy, food, alcohol and tobacco is shown for the euro area. The deflator for private consumption excluding energy and food is shown for the United States.

Sources: Bureau of Economic Analysis and Eurostat


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Figure 3.8. Revision of GDP‐growth

Source: Statistics Sweden

Quarterly change in per cent, annualised, seasonally‐adjusted data

Figure 3.9. GDP, model forecast with uncertainty bands

Note. The model forecast is a mean value of forecasts conducted using different statistical models. The vertical line represents a 50‐percent uncertainty band based on the models’ historical forecasting errors.


Quarterly change in per cent, annualised, seasonally‐adjusted data

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Model forecast

Forecast

Figure 3.10. New vacancies and redundancy notices

Note. Seasonally‐adjusted data for new vacancies. Sources: Employment Service and the Riksbank

Thousands

Figure 3.11. Labour shortage

Note. Construction industry refers to the proportion of firms that have quoted a labour shortage as their main obstacle to increased construction. The other industries refers to the proportion of firms responding yes to the question of whether there is a labour shortage.

Source: National Institute of Economic Research

Yes‐responses, per cent, seasonally‐adjusted data

Figure 3.12. Resource utilisation indicator

Note. The RU indicator is a statistical measure of resource utilisation. It is normalised so that the mean value is 0 and the standard deviation is 1.


Standard deviation

Figure 3.13. Wages in the business sector and economy as a whole

Note. Wages according to short‐term wage statistics. The National Mediation Office’s forecast of final outcome 2017Q3–2018Q2.

Source: National Mediation Office


Chapter 4

Figure 4.1. Global import of goods

Source: CPB World Trade Monitor

Index, 2010=100, seasonally‐adjusted data

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Emerging economies

Advanced economies

World

Figure 4.2. Unemployment in various countries and regions

Source: OECD

Percentage of the labour force, seasonally‐adjusted data

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Euro area

Figure 4.3. Exports and the Swedish export market

Note. The Swedish export market index measures import demand in the countries to which Sweden exports. This is calculated by aggregating imports in the countries included in KIX and covers around 85 per cent of the total Swedish export market.


Annual percentage change, seasonally‐adjusted data

Figure 4.4. GDP in various countries and regions

Note. KIX is an aggregate of countries that are important to Sweden's international transactions.

Sources: Bureau of Economic Analysis, Eurostat, national sources, Office for National Statistics and the Riksbank


Figure 4.5. Price of crude oil

Note. Forward prices are calculated as a 15‐day average. The outcomes refer to monthly averages of spot prices.

Sources: Macrobond and the Riksbank

USD per barrel, Brent oil

Figure 4.6. Inflation in various countries and regions

Note. KIX is an aggregate of the countries that are important to Sweden's international transactions.

Sources: The Bureau of Labor Statistics, Eurostat, national sources, Office for National Statistics and the Riksbank


Figure 4.7. Real and nominal exchange rate, KIX

Note. The real exchange rate is calculated using the CPIF for Sweden and the CPI for the rest of the world. The KIX is an aggregate of 32 countries that are important for Sweden's international transactions.

Sources: National sources, Statistics Sweden and the Riksbank

Index, 18 November 1992 = 100

Figure 4.8. GDP and GDP per capita


Annual percentage change, calendar‐adjusted data

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GDP per capita

GDP

Figure 4.9. Housing starts and housing investments


Number and per cent, respectively

Figure 4.10. Households' real disposable income, consumption and savings ratio

Note. Disposable income has been deflated using the household consumption deflator. Broken line is the average of consumption growth 1994–2017.


Annual percentage change and per cent of disposable income, respectively

Figure 4.11. Household debt and disposable income

Note. Households' total debts as a share of their disposable incomes totalled over the past four quarters.


Annual percentage change and per cent of disposable income, respectively

Figure 4.12. Employment and unemployment rate


Per cent of population and labour force, respectively, 15‐74 years, seasonally‐adjusted data

Figure 4.13. GDP gap, employment gap and hours gap

Note. The gaps refer to the deviation in GDP, the number of those employed and the number of hours worked from the Riksbank'sassessed trends.


Per cent

Figure 4.14. Real short‐term wages

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Note. Refers to short‐term wages in the economy as a whole, deflated by the CPIF.

Sources: National Mediation Office, Statistics Sweden and the Riksbank


Figure 4.15. Wages abroad

Note. Refers to the OECD’s forecasts for payroll expenses per employee in the business sector from May 2018.

Source: OECD

Annual percentage change, calendar‐adjusted data

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Figure 4.16. Wages and labour costs in the whole economy

Note. The National Mediation Office’s forecast of final outcome 2017Q3–2018Q2.

Sources: National Mediation Office, Statistics Sweden and the Riksbank


Figure 4.17. CPIF, CPIF excluding energy and CPI



Figure 4.18. CPIF excluding energy



Article –Development of the Swedish krona in the longer term

Figure 4.19. Bilateral real exchange rates according to different measures

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95 99 03 07 11 15Real SEK/EUR, pricing benchmark index Real SEK/EUR as in real KIX

Real SEK/USD, pricing benchmark index Real SEK/USD as in real KIX

Sources: Eurostat, OECD and the Riksbank

Index, 1995=100, annual mean value

Figure 4.20. Real exchange rate, KIX

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Index, 18 November 1992 = 100, quarterly averages

Figure 4.21. GDP per capita in Sweden in relation to KIX‐weighted countries abroad

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Index, 1993=100, annual mean value

Figure 4.22. Sweden’s terms of trade

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Index, 1993=100, quarterly averages

Figure 4.23. Current account balance

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Source: Statistics Sweden

Percentage of GDP, four quarter moving average

Figure 4.24. Real and nominal exchange rate, KIX

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Nominal KIX

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Note. The blue field shows the Riksbank’s assessed interval for the real exchange rate 5‐10 years ahead.


Index, 18 November 1992 = 100, quarterly averages

Tables

Tables

The forecast in the previous Monetary Policy Report is shown in brackets unless otherwise stated.

Table 1. Repo rate forecast Per cent, quarterly averages

Q3 2018 Q4 2018 Q1 2019 Q4 2019 Q4 2020 Q4 2021

Repo rate ‐0.50 ‐0.50 (‐0.50) ‐0.33 (‐0.33) 0.09 (0.09) 0.66 (0.66) 1.23


Table 2. Inflation Annual percentage change, annual average

2017 2018 2019 2020 2021

CPIF 2.0 (2.0) 2.2 (2.2) 2.1 (2.1) 1.9 (1.9) 2.0

CPIF excl. energy 1.7 (1.7) 1.5 (1.5) 2.0 (1.9) 2.0 (1.9) 2.0

CPI 1.8 (1.8) 2.0 (2.0) 2.6 (2.7) 2.9 (2.9) 3.2

HICP 1.9 (1.9) 2.1 (2.1) 2.1 (2.1) 1.8 (1.8) 1.9 Note. HICP is an EU harmonised index of consumer prices. Sources: Statistics Sweden and the Riksbank

Table 3. Summary of financial forecasts Per cent, unless otherwise stated, annual average

2017 2018 2019 2020 2021

Repo rate ‐0.5 (‐0.5) ‐0.5 (‐0.5) ‐0.1 (‐0.1) 0.4 (0.4) 1.0

10‐year rate 0.7 (0.7) 0.7 (0.7) 1.4 (1.4) 2.1 (2.1) 2.7

Exchange rate, KIX, 18 November 1992 = 100 112.9 (112.9) 117.5 (118.0) 115.6 (116.3) 112.9 (112.6) 111.1

General government net lending* 1.6 (1.3) 0.9 (1.0) 0.9 (0.9) 0.7 (0.7) 0.7 * Per cent of GDP Sources: Statistics Sweden and the Riksbank

Table 4. International conditions Annual percentage change, unless otherwise stated

GDP PPP‐weights KIX‐weights 2017 2018 2019 2020 2021

Euro area 0.11 0.48 2.5 (2.5) 1.9 (2.0) 1.6 (1.7) 1.6 (1.6) 1.5

USA 0.15 0.09 2.2 (2.2) 2.8 (2.8) 2.6 (2.6) 2.0 (2.0) 1.6

Japan 0.04 0.02 1.7 (1.7) 1.1 (0.9) 1.1 (1.0) 0.4 (0.4) 0.9

China 0.19 0.09 6.9 (6.9) 6.6 (6.6) 6.0 (6.1) 6.1 (6.1) 6.0

KIX‐weighted 0.75 1.00 2.9 (2.9) 2.6 (2.6) 2.3 (2.4) 2.2 (2.2) 2.1

World (PPP‐weighted) 1.00 ‐ 3.7 (3.7) 3.8 (3.8) 3.6 (3.8) 3.7 (3.7) 3.6 Note. Calendar‐adjusted growth rates. The PPP weights refer to the global purchasing‐power adjusted GDP weights for 2018, according to the IMF. KIX weights refer to weights in the Riksbank's krona index (KIX) for 2018. The forecast for GDP in the world is based on the IMF’s forecasts for PPP weights. The forecast for KIX‐weighted GDP is based on an assumption that the KIX weights will develop in line with the trend during the previous five years.

CPI 2017 2018 2019 2020 2021 Euro area (HICP) 1.5 (1.5) 1.8 (1.8) 1.9 (1.6) 1.6 (1.6) 1.7

USA 2.1 (2.1) 2.5 (2.5) 2.3 (2.3) 2.2 (2.2) 2.2

Japan 0.5 (0.5) 1.1 (0.9) 1.4 (1.2) 1.8 (1.8) 1.5

KIX‐weighted 1.9 (1.9) 2.2 (2.1) 2.2 (2.1) 2.0 (2.0) 2.1

2017 2018 2019 2020 2021 Policy rates in the rest of the world, per cent ‐0.1 (‐0.1) 0.1 (0.1) 0.2 (0.2) 0.5 (0.5) 0.8

Crude oil price, USD/barrel Brent 54.8 (54.8) 74.9 (72.3) 80.7 (72.4) 76.4 (69.6) 72.4

Swedish export market 5.0 (4.9) 4.2 (4.1) 4.0 (4.1) 3.6 (3.6) 3.5 Note. Policy rates in the rest of the world refer to a weighted average of USA, the euro area, Norway and the United Kingdom. Sources: Eurostat, IMF, Intercontinental Exchange, national sources, OECD and the Riksbank

Table 5. GDP by expenditure Annual percentage change, unless otherwise stated

2017 2018 2019 2020 2021

Private consumption 2.2 (2.2) 2.1 (2.7) 2.2 (2.5) 2.3 (2.3) 2.1

Public consumption 0.0 (0.4) 0.9 (0.7) 1.0 (1.0) 1.1 (1.2) 1.0

Gross fixed capital formation 6.1 (5.9) 2.8 (3.7) 0.1 (0.5) 2.8 (2.8) 2.8

Inventory investment* 0.1 (0.1) 0.4 (0.3) 0.1 (0.2) ‐0.2 (‐0.1) 0.0

Exports 3.2 (3.6) 3.2 (3.2) 3.6 (3.8) 3.7 (3.7) 3.5

Imports 4.8 (4.8) 3.4 (2.7) 2.7 (3.3) 3.5 (3.5) 3.8

GDP 2.1 (2.3) 2.3 (2.9) 1.9 (2.0) 2.0 (2.1) 1.8

GDP, calendar‐adjusted 2.4 (2.5) 2.4 (3.0) 1.9 (2.0) 1.8 (1.8) 1.7

Final domestic demand* 2.4 (2.5) 1.9 (2.3) 1.2 (1.5) 2.0 (2.0) 1.9

Net exports* ‐0.5 (‐0.3) 0.1 (0.3) 0.5 (0.4) 0.2 (0.2) 0.0

Current account (NA), per cent of GDP 3.6 (4.2) 3.0 (3.9) 3.2 (3.8) 3.3 (3.9) 3.1

*Contribution to GDP growth, percentage points Note. The figures show actual growth rates that have not been calendar‐adjusted, unless otherwise stated. NA is the National Accounts. Sources: Statistics Sweden and the Riksbank

Table 6. Production and employment Annual percentage change, unless otherwise stated

2017 2018 2019 2020 2021

Population, aged 15–74 1.1 (1.1) 0.8 (0.8) 0.6 (0.6) 0.5 (0.5) 0.5

Potential hours worked 0.9 (0.8) 0.9 (0.8) 0.8 (0.8) 0.8 (0.8) 0.7

Potential GDP 2.0 (2.2) 2.1 (2.2) 2.1 (2.2) 2.0 (2.1) 2.0

GDP, calendar‐adjusted 2.4 (2.5) 2.4 (3.0) 1.9 (2.0) 1.8 (1.8) 1.7

Number of hours worked, calendar‐adjusted 2.1 (1.8) 1.8 (1.7) 0.6 (0.7) 0.4 (0.4) 0.4

Employed, aged 15–74 2.3 (2.3) 1.7 (1.7) 0.8 (0.8) 0.5 (0.5) 0.5

Labour force, aged 15–74 2.0 (2.0) 1.4 (1.3) 0.8 (0.8) 0.6 (0.6) 0.6

Unemployment, aged 15–74 * 6.7 (6.7) 6.3 (6.2) 6.4 (6.3) 6.5 (6.4) 6.6

GDP gap** 1.2 (1.1) 1.5 (1.9) 1.3 (1.7) 1.1 (1.4) 0.8

Hours gap** 1.0 (1.0) 1.8 (2.0) 1.6 (1.9) 1.3 (1.5) 1.0

* Per cent of labour force **Deviation from the Riksbank's assessed potential level, per centNote. Potential hours worked and potential GDP refer to the long‐term sustainable level according to the Riksbank's assessment. Sources: Statistics Sweden and the Riksbank

Table 7. Wages and labour costs for the economy as a whole Annual percentage change, calendar‐adjusted data unless otherwise stated

2017 2018 2019 2020 2021

Hourly wage, NMO 2.3 (2.4) 2.6 (2.6) 2.9 (2.9) 3.3 (3.4) 3.4

Hourly wage, NA 2.5 (2.7) 2.8 (2.8) 2.9 (3.0) 3.3 (3.4) 3.5

Employers’ contribution* 0.0 (‐0.1) 0.3 (0.1) 0.1 (0.1) 0.1 (0.1) 0.1

Hourly labour cost, NA 2.5 (2.6) 3.1 (2.9) 3.0 (3.1) 3.4 (3.5) 3.5

Productivity 0.2 (0.7) 0.6 (1.2) 1.2 (1.3) 1.4 (1.4) 1.3

Unit labour cost 2.4 (2.1) 2.6 (1.8) 1.8 (1.7) 2.0 (2.0) 2.2

* Contribution to the increase in labour costs, percentage points Note. NMO is the National Mediation Office’s short‐term wage statistics and NA is the National Accounts. Labour cost per hour is defined as the sum of actual wages, social‐security charges and wage taxes (labour cost sum) divided by the number of hours worked by employees. Unit labour cost is defined as labour cost sum divided by GDP in fixed prices. Sources: National Mediation Office, Statistics Sweden and the Riksbank

MonetaryPolicy Report October2018

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Transcript of MonetaryPolicy Report October2018